Mankala principle
In Finnish corporate law, the Mankala principle is a way of organizing a corporation on a zero-profit basis to provide products or services to its owners at cost. Such an arrangement is common in Finland, especially in the energy sector, and several major power companies in Finland are Mankala corporations, including Pohjolan Voima and Teollisuuden Voima.
The name derives from the eponymous Mankala company which was set up in the 1930s by a consortium of power providers to own and operate hydropower stations and to sell electric power to its owners strictly at cost. The legality of this arrangement became the subject of an important court case when authorities suspected that selling products to shareholders below market rates might constitute a covert dividend. The Finnish Supreme Administrative Court ultimately found in favour of the owners, and similar corporations have proliferated.
A Mankala corporation is set up as a joint-stock company whose shareholders bind themselves to buy its product and to be liable for its operating costs in a manner specified by the company by-laws. It is not necessary for there to be more than one shareholder.
As the owners are bound to buy the product and to cover costs, a Mankala corporation is not strictly a limited liability corporation, but the owners' liability is nevertheless limited to what they have expressly undertaken.
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